Social Finance

1
Social Finance

• An underdeveloped but essential aspect
• of sustainable investing in Canada
• Building Social Finance Momentum

Tim Draimin, Tides Canada Foundation Ted Jackson,
Carleton University Social Investment
Organization (SIO) Conference Tuesday May 29th,
2007 Montreal, Quebec
CAUSEWAY a national collaboration
2
Outline

• Social Finance Orientation
• Financial flow to public benefit
• Across a continuum of risk and return
• Gaining momentum
• The Canadian Context
• Coming from behind
• A framework ready for updating
• Potential leverage points
• Exemplary Possibilities
• CAUSEWAY a national collaboration
• Discussion and Next Steps

3
Social Finance is

• Sustainable finance with a social or
  environmental goal
• Social purpose capital, whose marketplace
  definition is
• Space on financial continuum between high
  financial value and no social value returns
  (traditional financial investment vehicles) and
  no financial value but high social returns
  (grants).
• Taking root in the hybrid universe
• Where charities, non-profits, co-ops and business
  connect

4
Business Non-Profits Convergence Growth of
Hybrid Universe
BUSINESS
GOVERNMENT
Hybrid Space
CHARITIES NON-PROFITS
5
Orientation Financial flow to public benefit

• The flow of financial capital to human need uses
• Affordable Housing
• Social Enterprise
• Community Development
• Social Economy
• Clean Technology
• Microfinance
• Fair Trade
• Green Building
• Health Home Care
• Media
• Education
• Base of the Pyramid
• (source market sector listing adapted from
  www.xigi.net)

6
Snapshots of Social Finance

• Citizens Banks Shared World Term Deposit that
  helps support microcredit financing
• "The Shared World Term Deposit is not charity,
  it's a competitive investment vehicle with a
  social objective," said Jason Farris, president
  and CEO of Citizens Bank of Canada. "We see this
  as an opportunity to provide investors with a
  sound financial return and a solid social return,
  ultimately making a difference in the lives of
  many people."
• Deutsche Banks Investment Fund for Eye Care
  Hospitals in Developing Countries The Eye Fund I
  
• 20 million investment fund to finance expansion
  of eye care hospitals in developing countries,
  providing loans and guarantees supporting the
  development of affordable, sustainable and
  accessible eye care for the world's poor while
  providing a near-market return for investors.
• "The Eye Fund is a real demonstration of a new
  market-based approach to address a fundamental
  human needOur goal is to capitalize on our
  expertise in the financial markets in order to
  expand this approach to other large-scale
  projects that currently are fully dependent upon
  charitable contributions for funding."
  CEO of Deutsche Bank Americas11

7
Orientation A continuum of risk and return

• An increasingly broad range of mechanisms that
  blend financial and social/environmental returns

8
Orientation Gaining momentum

• Emerging financial products
• PRI and MBI
• Program Related Investments
• Mission Based Investments
• Approaches for foundations to leverage endowment
  capital toward mission related activities
• Spans the continua of risk, return, focus
• Well developed in the United States
• Social venture capital
• Applying venture capital models to social
  enterprise
• Innovations in business models and blended value
  returns
• Well developed in the UK Community Interest
  Company legal structure and marketplace
• Issues with good asset classes
• Affordable Housing
• Community Energy and Efficiency

9
Canada Coming from behind

• Building from strong third sector
• 120 B annual expenditures
• Less than 10 of income is donation capital
• Growing social and environmental pressures met
  with government and market failures
• Government Insufficient and inflexible
  programs/services/funding
• Market Trust issues, see no potential for
  profit, respond to consumer demand
• Growing market opportunity for financial sector
  to offer blended value
• Citizens increasingly aware of societal issues
• Increasing interest in sustainability
  innovation, ethical investment ethical
  consumerism (fair trade) local solutions
  mission based entrepreneurs and ventures

10
Canada A framework ready for renewal

• Limiting regulatory framework ready to catch-up
• Income Tax Act and charity law significantly
  restrict flow of capital
• International examples from US and UK provide
  relevant reference models
• US
• IRS allowance of charitable investment in
  non-charities
• Community Reinvestment Act
• New Markets Tax Credits
• UK
• Community Interest Company designation
• Already over 800 registered CICs

• 43 of respondents said that they became a CIC
  because it was the most appropriate form between
  business and charity. 19 cited less regulation
  and 16 cited social purpose.
• Other survey results
• 43 of CICs said that the most important factor
  in their decision was to prove their social
  purpose.
• 37 of CICs felt that the biggest barrier facing
  their company was access to finance
• 90 of CICs surveyed were stand-alone companies,
  7 were trading arms of charities, 1.5 were
  company subsidiaries and 1.5 were public sector
  spin-offs.
• 15of CICs surveyed said becoming a CIC had made
  it easier to interact with other organisations
  such as local authorities, foundations, banks and
  government departments.
• 11 said it had given them, their directors and
  staff a clearer focus on their combined business
  and social aims.
• Average turnover of CICs surveyed is 144,000.
• Two-fifths of CICs said that 76-100 of their
  income was from trading and fewer than one-fifth
  said trading accounted for less than 50 of their
  income.
• Source http//www.socialenterprise.org.uk/Page.as
  px?SP1626

11
Canada Potential leverage points

• Policy?
• Corporate structure
• i.e. CIC (UK)
• Tax
• i.e. New Markets Incentive (US)
• Products?
• Social venture capital
• Specialized investment products
• Issues with substantial assets
• Affordable Housing
• Community Energy and Efficiency
• New capital pathways

???
12
Exemplary possibilities

• Venture capital
• The Abell Foundation invested in a startup
  company that was developing a blocker for
  cocaine, on the condition that the company locate
  in Baltimore. The company has since created 200
  local jobs, gone public, and the foundation sold
  its stock for 12 times its initial investment.
• Local community development
• The Columbus Foundation used 2 million to seed
  an 18 million low-cost housing fund to build
  1,600 new units of affordable housing.
• Startup or expansion capital in underserved
  communities
• The Heron Foundation has also invested 2.5
  million in a limited partnership interest in the
  Yucaipa Corporate Initiatives Fund, a 577
  million private equity fund that invests in
  businesses that locate in underserved
  communities. The fund has a stated goal of
  earning a 25 internal rate of return for its
  investors.
• Debt mechanisms
• Milestone achievement of 100m in loans to
  community finance institutions and social
  enterprises by Calvert Foundations Community
  Investment Note
• Acquisition of assets
• BC Pension Funds 21 BC-based union and
  management pension funds pooled 27 M to form
  Concert Properties in 1989 (originally named VLC)
  with the objective of financing affordable rental
  housing in BC, and creating jobs in the unionized
  construction industry. Today the 100 pension
  plan owned real estate corporation has 800
  million in assets, with a track record of
  creating 10 million hours of on-site employment
  for unionized construction workers.

13
CAUSEWAY a national collaboration
A national collaboration
working on new pathways
for financial investment
in public benefit.
14
CAUSEWAY a national collaboration

• Strategies
• Improve knowledge and awareness of Canadas
  social finance opportunity
• Convene and engage the community
• social finance pioneers, financial market
  masters, and policy developers
• Support capacity-building for capital users and
  providers
• Catalyze development of new financial pathways
• Policy and product
• Key activities
• National forum being planned for October 2007
• Online web platform coming summer 2007
• Product/Policy and regional working groups
  emerging throughout 2007
• Founders Circle currently being assembled
• Sustaining funders for growing social finance in
  Canada

15
CAUSEWAY a national collaboration
Thank you!
Presentation available at http//tinyurl.com/36z
twa
16
Discussion and Next Steps

• Wheres your opportunity in social finance?
• What are your barriers and gateways?
• Policy? Partners? Products?
• Who can you collaborate with?

17
CAUSEWAY a national collaboration
CONTACT
Michael LewkowitzStart-up Coordinator Phone (41
6) 607-5643 [phone] Email michael_at_igniter
.com
Tim Draimin Chair, Steering Committee Executive
Director, Tides Canada Foundation www.tidescanada
.org Phone [phone] x244 [phone]
x1 Email tim_at_tidescanada.org
Ted Jackson Steering Committee Member Associate
Dean Faculty of Public Affairs Carleton
University Phone [phone] ext
2257 Email edward_jackson_at_carleton.ca